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Fairfax master of its own Domain

Fairfax Media's organisational restructure is primarily about eliminating duplicated management functions that support the group's stable of media brands. But there is an intriguing byproduct. It also makes the group's Domain online and print real estate listings and search business a visible profit centre.

Fairfax Media's organisational restructure is primarily about eliminating duplicated management functions that support the group's stable of media brands. But there is an intriguing byproduct. It also makes the group's Domain online and print real estate listings and search business a visible profit centre.

The restructure creates five divisions, and the new heavyweight is Australian Publishing Media, which contains all the group's print and online news-oriented assets including The Age, The Sydney Morning Herald, The Australian Financial Review and regional media. It will be run by Allen Williams, who successfully consolidated Fairfax New Zealand. Another key appointment is Ed Harrison, who crosses from being the commercial director of the old Metro Media division to preside over sales across the enlarged publishing division.

The other divisions are digital ventures, which will house transaction-oriented online businesses including Stayz and RSVP; Fairfax Radio; Fairfax New Zealand; and the new Domain division, which houses the Domain business and the group's Metro Media Publishing real estate and specialist publishing joint venture.

The big Australian Publishing Media division will have four units - news media, business media, life (or lifestyle) media and community media - but key support functions for them including sales, marketing, business planning and information technology management will be rationalised to create a unified support platform.

Chief executive Greg Hywood said in February that the group was on track to deliver annual cost savings of $251 million a year by June 2015, but that more savings were being sought. This restructure delivers some of them, as Fairfax deals with the structural shift from print to online media, the pressure on revenue that accompanies the change, and a cyclical downturn in activity and advertising demand that began during the global financial crisis and is persisting.

More changes will come as Fairfax reshapes itself for the new media environment. It's a balancing act as the group looks to use its resources more efficiently by sharing and networking them at all levels while maintaining and developing the separate identities of its key media brands.

Domain's move into the spotlight might be the thing that interests Fairfax investors the most.

Morgan Stanley estimated in August last year that Fairfax's digital media business was worth $704 million and that within that total the successful Domain business was worth $474 million. That was based on a multiple of 12 times estimated earnings.

Morgan Stanley's argument last year was that the value of Fairfax's digital business was not being reflected in the group's share price, which hit a low of 36¢ in mid-October. The shares have bounced back, but at Thursday's 1¢-lower close of 61¢ in a weak market, they still only valued Fairfax at $1.43 billion, making Domain a key and potentially still not fully recognised asset.

Hywood said on Thursday that making Domain a "stand-alone division" recognised the significance of the real estate sector for the group. The move is also going to make it easier to value Domain inside Fairfax, and as a potential spinoff or outright asset sale. In a tough media market, that can't hurt.

NBN a simple rewire

There's a bit of work to do before the ACCC and NBN Co produce a final access undertaking governing NBN's wholesaling of broadband to telco retailers. But only a bit, and when they are done they can get ready to do it again later this year.

There is agreement on a price cap, agreement that the NBN can recoup reasonable costs and make a reasonable return, and agreement on a structure that allows elements of the 27-year access regime to be locked in for shorter periods.

The ACCC wants a few more things, including greater oversight over the withdrawal and introduction of new NBN products to ensure they do not become a Trojan Horse for price rises, the ability to review and change the mix between NBN access prices and usage prices if usage goes up (that should drive usage prices down as usage increases) and the removal of non-price terms from the undertaking including response times and service levels.

NBN will be happy to negotiate non-price terms directly with the telcos, and won't push too hard against the other proposals.

Of course, a Coalition government would fundamentally change the NBN project, rein in the NBN and, if reports are correct, also allow wholesale competition. A renegotiation of the NBN's access regime is therefore likely to be needed after the September election. The work that has already been done should make for a relatively simple rewrite.

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